What’s it going to take to Fix Financial Services?

FOREWORD

Dr. Kara Tan Bhala

This book contains the well-ordered thoughts of a multiplicity of impressive minds and extensive experiences. Despite the variety of voices, each and every author focuses on one purpose: to enhance the financial services industry from its current unsatisfactory state. When I say the financial services industry is in an unsatisfactory state, I mean to say several elements of the industry are in ethical disarray and in need, for a long time now, of fixing.

The overarching general solution to this core problem and its various manifestations is greater transparency in all aspects of the business. Hence, the mission of the Transparency Task Force is to use the power of transparency to reform financial services, to the result that these services serve people better. The Transparency Task Force prudently identifies 12 areas in finance that require higher levels of transparency and improvement and considers them the drivers of change. These areas range from “Cultural Reform” and “Technology”, to “Responsible Reward” and “Better Risk Management.” Together, these 12 areas comprise the Financial Development Goals that lead to the rebuilding of trustworthiness and confidence in financial services. Not coincidentally, ethics informs and animates all these 12 drivers of change. And so, finally, it should. 

There is no over dramatization to propose that in order to make finance better, it is necessary to change the very philosophical foundations on which the discipline is based. Since the middle of the twentieth century, there has been a Friedmanite insistence in neo-liberal economics and its stepchild, finance, which, in its quantitative dimension only, is all the rage in business schools, on the primacy of profit maximization. A profit maximizing corporation simply has to operate within the law and not break the rules of the game. In all other instances, the corporation makes no normative judgments. This world view sees finance as independent of any particular ethical position. Instead, the market fully and effectively occupies the space of ethics judgements.

But we have observed time and again the existence of market failures – the Great Financial Crisis is an outstanding example. Ironically, the theory that claims to be ethics free is itself propelled by an ethic: profit maximization. Remarkably, the disciples of the theory are seemingly blind to the reality that at the heart of every financial crisis is an ethical lapse. To put ethics into its rightful place in finance, the first step is the clear and open enunciation of a purpose of finance.

Purpose, or telos according to Aristotle, is the final cause. The reason we do what we do. A noble purpose is more likely to engender good acts, although it does not guarantee every act is good. Aristotle gives a highly relevant example, especially in this Time of Pandemic, by stating the purpose of the medical profession is to help people be healthy. Regrettably, where finance has fallen over the past half century or so is its gradual abandonment of an acknowledged purpose that entails the notion of helping people. Making efficiency the goal of financial activity has led to the collective unconscious equating finance almost exclusively with money, neglecting the connecting link: people. Needless to say, I am in complete agreement with all of the 12 Financial Development Goals in this book, especially that of instilling “Greater Purposefulness” in financial services. 

Since the Great Financial Crisis of 2008, the financial services industry has lost the trust and confidence of a public now weary with regular crises in the world, from stock market crashes to terrorist attacks, and now pandemics. People simply want their financial services to work for them, they want a finance that serves people, rather than exploits people. Let’s face it. In the Time of Pandemic, the healthcare services industry has shown that its practitioners serve people and put human lives first, even sometimes at great risk to themselves. Conversely, in the Time of (and after) the Great Financial Crisis, the financial services industry has shown it serves itself and puts profits first. The contrast cannot be more jarring.

To say this book is indispensable at this moment of financial history, is not hyperbole meant for mere marketing and public relations. It is a truth based on empirical evidence. I would like to thank the contributors for their work, dedication, and passion to drive positive change in the financial services industry. Ultimately, this book is their clarion call, to all who care, to become active participants in the process of much needed progress. Please read, and re-read, their thought-provoking contributions, and tell everyone you know to do the same. These change agents firmly believe that “finance is meant to serve people; people are not meant to serve finance.”